Is Mortgage Life Insurance Mandatory

Hi, a bit of advice needed. I have a mortgage for the past 6 years (AIB) and took out life insurance with the mortgage. About a year ago my broker called me and offered me cheaper insurance quote. I filled out all the usual forms and agreed for the company to contact my doctor. There was something from many years back on my doctors file which invalidated my existing policy (as i did not disclose at the time of application). Unfortunately i was diagnosed with a serious blood disorder in the mean time and have had to give up work as a result. So my existing policy is invalid and a new policy will cost a fortune, which i cannot afford. So my question is, am i obliged by law to have insurance and what would happen if i said i could not pay, could the bank force me to sell my house. Any help appreciated.

This is determined by the Consumer Credit Act.

If the cost of the insurance is prohibitively expensive, there is an exemption from taking it out. However, I think your lender may have to agree to the exemption.

In practice, there is not a lot that they can do if you don't take it out.

I doubt if they would take out the cover themselves on your life and then add it to the mortgage.

Brendan

IS this the same for home insurance? or is that a bank by bank thing?

I believe Ulster bank dont insist on life cover proof anymore.

No, it's only for mortgage protecion insurance.

http://www.irishstatutebook.ie/1995/en/act/pub/0024/sec0126.html

So it's up to the lender to take out the insurance and they don't have to, if the borrower takes out the insurance. I hadn't realised that.



126.—(1) Subject to the provisions of this section, a mortgage lender shall arrange, through an insurer or an insurance intermediary, a life assurance policy providing, in the event of the death of a borrower before a housing loan made by the mortgage lender has been repaid, for payment of a sum equal to the amount of the principal estimated by the mortgage lender to be outstanding in the year in which the death occurs on the basis that payments have been made by the borrower in accordance with the mortgage, such sum to be employed in repayment of the principal.

(2) Subsection (1) shall apply as respects all housing loans except—

(a) doesn't apply
(b) loans to persons who belong to a class of persons which would not be acceptable to an insurer, or which would only be acceptable to an insurer at a premium significantly higher than that payable by borrowers generally,

(c) doesn't apply

(d) loans to persons who, at the time the loan is made, have otherwise arranged life assurance, providing for payment of a sum, in the event of death, of not less than the sum referred to in subsection (1).

(3) A person who does not belong to a class referred to in paragraph (b) of subsection (2) shall not be required by virtue of this section to undergo a medical examination as a condition of a policy but nothing in this section shall prevent a person belonging to such a class from being required to undergo a medical examination.

Thanks for that information Brendan.

It looks like legally they can't force you to have life insurance.

The OP has not stated if the property in question is a PPR or an Investment property. Under normal circumstances in the case of a PPR the lender can insist on a Life Assurance / Term Life Policy assigned to the lending. If the property is an investment property, they will not request a Life Policy.

They usually would insist but at this stage he has the money so not a lot they can do about it if the policy lapses. Are you sure the policy is invalid now? Has it been cancelled already or what have you done with it.

The bank won't make you sell your house because you don't have life cover, maybe if you can't pay the mortgage it may come to that eventually but the life cover issue is more of a problem for you and your dependents should anything happen you.

The house is my PPR. The policy is not yet cancelled, the insurance company said there was an issue and they may cancel. I assume they will inform the bank. I just wanted to be sure i am not legally obliged to have the policy. If not then i won't worry either way.

Thanks for the help.

dub mark, I am in a similar situation, although I did pay the excess I feel now 6 years on its not right, so i am contesting it, however the insurance federation man told me that you can ask for a final response and then ask you lender from an exemption from life cover. What are they going to do? take the house of you? thats what he said to me, if you have already resolved this, would love to hear how it went cheers

Troy McClure said:

IS this the same for home insurance? or is that a bank by bank thing?

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Most or all (and I'm fairly sure it's all) mortgage loan agreements require the owner to put in place buildings insurance for the reinstatement value of the property. Since the lender has a vested interest in the property as long as it is mortgaged/used as security for a loan they want it insured. You can shop around for this though and you are not obliged to take it from the lender (ditto for mortgage protection life insurance) where you may not always get the most competitive deal. You can decide whether or not contents insurance - but obviously it's often prudent to have some level of same.

Mortgage protection insurance rebate?

well I actually rang today because I felt my insurance was too expensive, I didnt realise that It was life and full term meaning if I passed away 1 year before mortgage paid, the full amount of mortgage is paid up to next of kin. However, they have a new online system and I went in for first time and realised they had me down as a smoker, which I am off them 7 years, however, was only off them 11 months when i took the policy out. Should I be due some kind of rebate? as I got an online quote of €30 a month cheaper for a non smoker? any advise be helpful

thanks

deeheg said:

I didnt realise that It was life and full term meaning if I passed away 1 year before mortgage paid, the full amount of mortgage is paid up to next of kin.

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You mean it's level not decreasing term? And maybe convertible term - i.e. could be continued even after the mortgage is repaid if desired?

Personally I would generally keep mortgage protection life insurance and general life assurance separate and just buy the cheapest decreasing term cover for the former. But individual circumstances and needs vary.

You should be able to shop around for cover at any time. If you find cheaper cover because you are now considered a non smoker and even though you are now older then you should look at replacing the existing policy with a cheaper one - depending on you specific needs.

I doubt that you would get a rebate or even a reduction in ongoing premiums on the existing policy because you are now a non smoker. I imagine that policies are generally issued based on the facts at the time and the premium is set for the lifetime of the cover.

Hi , no its only mortgage life cover and its level, so if i died a year before mortgage complete the full amount paid out. But I wasnt advised that I was paying as a smoker as I was off the cigarettes 11 months , if it had been one month more, I would have paid €30 less a month, I think a bit unjust that I am paying a policy as a smoker, and wasnt advised?

When you took out the policy though you were a smoker, how were they to know you gave up, or did you go back and advise them?

deeheg said:

Hi , no its only mortgage life cover and its level, so if i died a year before mortgage complete the full amount paid out. But I wasnt advised that I was paying as a smoker as I was off the cigarettes 11 months , if it had been one month more, I would have paid €30 less a month, I think a bit unjust that I am paying a policy as a smoker, and wasnt advised?

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My understanding is that a policy is issued based on the facts at the time and the premium fixed at that stage. I don't think that there are generally options for review of the policy/premium based on a change in circumstances such as giving up smoking - but read you policy document terms & conditions just in case. However you can shop around at any time and if, because you are now a non smoker even though older, you get a better deal elsewhere you can go with that instead.

Well I never saw the policy document as they advised me via letter today it went to my bank. therefore didnt know they had me as a smoker though 11 months non smoker when I took it, i wasnt advised that, if so I would have cancelled and gone as as 12 month non smoker elsewhere. I think I should have got a copy of what was what, the bank or sending it to me a copy in post today

You should have received a copy of the policy document when you took the policy out. They may (should?) also have a copy of the application form on file to clarify what boxes you ticked.

just updating, got a policy copy from the bank today, nothing re smoking on it, so have written again to them. Not a happy camper with responses so far!

Unlikely to be in the policy, would be on the quotes you got which normally show whether the applicants are smokers or not.

The question would have been on the initial form filled, some are phrased 'have you smoked within last 12 months' or some other term. Sometimes if someone has given up recently they may still not be able to tick the box as they will have smoked in the past 12 months. They then are classified a smoker and quoted as such. Only solution then is to reapply when you have passed however many months stipulated by the company, however the company is not going to get back to you about this, it would be up to yourself to make a new application.